In a three-part series, part one outlined the implicit need to align innovation to the corporate strategy, and through this we can determine ‘acceptable risk’.

In part two I offered numerous reasons why we should recognize and treat innovation risk differently to allow it to perform closer to its promise of driving growth and achieving real advantage.

This post here is the third and last part, part three, where I lay out different mechanisms and framing of risk and innovation. These need to be evolved to fit your own risk appetite, not one size fits all. I hope it helps.

Risks are certainly shifting. In a recent piece of work by Deliottes called “Risk sensing:the (evolving) state of the art, the risks of most concern are changing each year. Interestingly, the pace of innovation stands among the top three risks in 2015 and tops along with regulatory risk, the list was foreseen in 2018. With technology disruption, business model disruption and growing competition, social and customer engagement challenge the ability to manage innovation is growing as a concern and in risk management.

We need to formulate a more robust risk innovation framework.

Risk management for innovation needs to evolve to keep pace with the changing demands and pace of change we are undergoing in business challenges. Risk is becoming an evolving capability.

Mark Johnson of Innosight wrote a great article some time back that still holds true today, in its observations, on how poorly the relationship between risk management and innovation is understood. To quote the specific parts

1. Risk management isn’t the antithesis of innovation; it’s the essence.

How an organization conceives of risk management will in large part decide how effectively innovation is pursued.

2. Risk management isn’t the brake on innovation; it’s the accelerator.

Risk management, treated as a learning process, not only propels innovation forward but can also speed it up.

3. Real discipline in innovation risk management means a more relaxed approach to the financials.

In genuinely new-business innovation projects, it is critical to release the leaders of the effort from the norms and metrics of the core business.

Mark made some clear observations and statements on viewing risk management as a core competency.

As Clark G.Gilbert and Mark’s colleague Matthew J.Eyring argued in Harvard Business Review, the core competency of the most effective and successful innovators is risk management. To repeat: Risk management is their core competency. For these innovators, whether in new ventures or in a corporate setting, the ability to identify, prioritize, and systematically eliminate risks is what drives innovation forward.

They approach risk management not as a safety procedure but as a learning process. They know that no new-business model is perfect from its inception. So they test its various components and their combinations—its customer value proposition, profit formula, key resources, and key processes—in controlled experiments in tightly circumscribed markets, learning as they go and making adjustments.

It is (clearly) more prudent and ultimately more productive to get the value proposition right and judge it in terms of how fast it converts assumptions to certain knowledge. While experimentation speeds the time to viable business innovation, it does not necessarily lead immediately to the kind of large-scale growth or increased market share that are usually the barometers of performance in the core business.

The relevant financial measure during this stage is whether the new business can be made profitable in its foothold market. Profitability confirms the strength of your fundamentals, allowing you the patience to scale up in a measured way. That is the real financial discipline in innovation risk management: the unswerving ability to resist applying the wrong kind of financial metrics at the wrong time and so unwittingly choke off growth potential before it can reach full fruition.

He concludes ” one of the biggest risks in innovation is to see risk management as a framework to be superimposed on new-business creation rather than as an inseparable part of the process itself.

Lets look at the mechanics of risk management for innovation.

There is no reason it cannot relate to existing risk frameworks. We can adapt to the accepted practices of risk management but innovation risk needs to have its own risk management framework

For this I went in search of a broad discussion in understanding risk and its management. I found a series of articles written by Peadar Duiffy, as founder and chairman of Risk Management International (RMI) on risks in relationship to insurance and this series can be found through http://insurancethoughtleadership.com/risk-and-strategy-how-to-find-the-links. These I found to be especially useful to ‘translate’ into the make up of a risk management framework.

I’ve adapted these on how they might work or be used as a guiding group to build risk management and innovation in some depth. I think it works but you might advance these from your own perspectives.

Firstly lets establish some observations:

1. Directors and senior managers need a globally accepted guide on the attributes of an effective risk appetite framework to manage innovation, independent of their corporate risk guidelines but they dovetail into them..
2. Emphasis is shifting globally from risk management to building resilience and as we learn and explore about managing risk in innovation and each innovation can have different variances we need to ensure the risk optimization is achieved when risk and strategy are aligned with corporate objectives. Achieving this comes through the use of the three horizons framework for aligning where innovation fits and its (risk) horizon and place, pushing to encourage a greater scope of innovation, of building a validation, proofing and testing mentality.
3. “Strategic risks” are those that are most consequential within the innovation activities that have a potential impact to the organization’s ability to execute its strategies and achieve its business objectives. Having a clarity of strategic risk, those must be material to have impact on the organization. These are the risk exposures that can ultimately affect shareholder value or the viability of the organization growth. Strategic risk management is focused on those most consequential and significant risks to shareholder value, an area that requires  the time and attention of executive management and the board of directors. More radical innovations, disrupting positions or new business models would form part of this risk assessment.

Then we need to strengthening the strategic planning process

1. Increasing rigor, formality and consistency in the strategic planning office which derives its authority from the board and  the CEO’s office, needs engagement within the risk management of innovation. It at least needs ongoing awareness of the direction and impact any more radical innovation might have, to evaluate its impact.
2. Aligning strategy, risk and audit board subcommittees (through cross-representation) in a manner that largely feeds into the board risk oversight, reporting and monitoring on innovation that might have material impact.

Embedding risk management and innovation competence within the structures developed.

1. Explicitly articulating corporate and organizational objectives in relationship to innovations contribution and need.
2. Testing the alignment of group, corporate and organizational objectives through development and review of risk appetite statements that bring the innovation efforts together. Who is responsible for what.
3. Establishing an effective risk appetite framework, which includes:
4. Statement of purpose and values of the organization towards innovation’s position of value and growth contribution
5. Explicitly stated board risk assurance requirements; factors to consider and these would include:

• Mapping objectives to a risk appetite continuum, articulated and discussed
• Qualitatively expressed risk appetite statements to help in reassurance (reputation etc),
• Quantitatively expressed risk criteria related to both risk tolerance and risk limits
• Acknowledging these evolve but in a measured process that is dynamic and evolving from learning.

Understanding and improve progressively the organizational level of risk maturity

RMI had developed a five-level Risk Maturity Index, which provides a road map to risk optimization,  it has merit for innovation to also follow. The index scores risk maturity capability requirements, etc. In summary, it describes:

• Level 5: “Value-Driven” — Optimizing value through aligning risk and strategy with corporate objectives,
• Level 4: “Clearly Managed” — Gaining value through aligning risk and strategy in pursuit of corporate objectives,
• Level 3: “Providing Insight” — Gaining insights into how to better align risk and strategy in pursuit of corporate objectives that evolve as innovators and the board gain growing confidence they are on a similar track,
• Level 2: “Gaining Awareness” — Developing awareness  into how to align risk and strategy in pursuit of corporate objectives relating to innovation and its development
• Level 1: “Basic Learning” — Seeking awareness of the links of risk and strategy in pursuit of corporate objectives relating to innovation.

Establishing clear governance, setting policy and monitoring performance: In the context of the relationship between risk and strategy,good governance means accounting for the type of risk culture that encourages and manages innovation.

• “Risk culture” is a term describing the values, belief, knowledge and understanding about risk shared by a group of people within a common innovation purpose, in particular the employees of an organization or of teams or groups within an organization to relate too
• Risk culture, as an aspect of culture, can be practically described thus:
  • Culture: The way we do things around here!
  • Risk culture: The freedom we have to challenge around here!
  • Risk culture is capable of being demonstrably and credibly evidenced and discussed.

First we need to explore: do boards express clearly and comprehensively the extent of their willingness to take risk to meet their strategic and business objectives in encouraging the innovation activities?  Second, do they explicitly articulate risks that have the potential to threaten their operations, business model and reputation?

How are risk appetite, risk tolerance and risk limits related to one another? 

The RMI Risk Maturity Index correlates and again, serves well for innovation and risk:

1. Level of alignment of risks to strategy, objectives and execution of the innovation portfolio,
2. Risk role affirmations at each maturity level (shown above),
3. Risk culture affirmations (practices confirmed by internal and external attestors), who periodically check
4. Risk defense affirmations (practices confirmed by internal and external attestors), in discussions
5. Board and organizational processes that bring innovation continuously into the boardroom, in clear line of sight.
6. Value realized at three levels: a) the customer, b) the organization and c) stakeholders.

As a particular Risk Assessment Strategy (RAS) is devolved down through an organization, its content will change based on the intended recipients as well as their relationship to innovation For example, a RAS at:

• Group executive level will be high level and inclined toward expressing appetite for risks to objectives that deliver value and increase performance, that show potential and promise. The RAS will clarify the innovation objectives, risks tolerance levels, escalation procedures, expected returns across a broader range of measures and how the  control(s) to manage risk and innovation apply, looking for:
• Middle management level will articulate levels of tolerance that, if breached, will require escalation and “circuit breaking” reports, with priority given to immediate interventions and a review of internal controls but having a dynamic process of knowledge, learning, risks and opportunities to convey these to the board, if necessary or in a regular reporting format
• Business unit level and the team within these responsible for innovation, will have a more detailed and expanded RAS explanation, inclined toward expressing risk limits and internal controls that enable greater innovation understanding, spelling out risk tolerance, appetite and linking this into the articulated innovation strategy

The various components among the numerous risk maturity models tend to overlap considerably. Here’s one generic set of attributes of maturity:

• Risk is managed to specifically defined appetite and tolerances that relate to innovation need and strategy.
• There is management support for the defined risk culture and direct ties to the corporate culture
• A disciplined risk process is aligned with other functional areas to integrate innovation
• There is a process for uncovering the unknown or poorly understood risks of innovation and an evolving path to clarify, test, explore so a continued learning process is in place to build innovation capabilities & capacity.
• Risk is effectively analyzed and measured both quantitatively and qualitatively, both in hard terms and the softer potential seen at that point of time, to be determined and validated for improving quantification.
• There is collaboration on a resilient and sustainable enterprise, building on the knowledge and learning gained, shared and ‘factored into’ the risk management framework to keep it dynamic and evolving.

In summary

Innovation has many unknowns, but it is the learning and evolving that can give growing confidence. Constructing a risk innovation framework that grows as confidence is ‘found’ and a process to alert and inform gives the ability to constantly quantify these unknowns, constantly searching to find ways to measure and provide returns.

We need to relate risk and innovation in clearer ways, to give a greater confidence and encouragement to pushing for the new.

***Again, I certainly have to acknowledge, that I found the series of articles written by Peadar Duiffy, as founder and chairman of Risk Management International (RMI) on risks in relationship to insurance. as really valuable in framing innovation and risk as outlined here.

The post Developing a new framework for risk and innovation. first appeared on Building Your Innovation & Ecosystem Intelligence.

We should aim for a really healthy construct that does help all involved or associated with innovation and managing risk, that gives a better chance of pushing beyond the incremental innovation that avoids most risk and disappoints those seeking real growth.

In this post two, within a three-part series, I build the argument on why we need to treat innovation differently within any risk assessment. Part one focused on linking risk into an innovation strategy that needed to align with the corporate one.

Each organization finds its own level of risk appetite. Regretfully innovation, often by default, gets swept up in this generalization of “risk management” that is corporately driven and the serious message of “risk” dampens exploration. There is a real need to make a clear argument that innovation should be treated differently. It can still come under the broad risk umbrella but judging innovation risk is utterly different from organizational strategic risk.

Innovation is a learning process not to be confused with a safety procedure, both can be effectively managed and different in their treatment. No new business model or innovation new to the market, or even service enhancement, is perfect from its inception, it improves with learning on what is valuable and needed, what can be ‘dampened’ down, switched off or reduced through market exposure.

Equally, we have learnt innovation evolves due to this learning process and how ‘it’ interacts with customer needs. We make an effort to get it as right as possible, as close to the launch, but there are often so many unknowns that only through exposure to the market and the customers do we learn to adapt, adjust, modify and improve the offering. This ‘adaptive’ process scares the board as it has implications on reputation, on the brand and on its abilities to get innovation right. This iterative process is felt should be left only inside the organization as some feel it conveys vulnerability and failing. How wrong this is.

So we tend to go to default. Risk mitigation kicks in. We strive to minimize the risks, reduce the learning and opt for a more incremental approach.

As Accenture in one of the few reports discussing risk and innovation, “The art of managing innovation risk” state:

“Few decision makers want to take responsibility for a failed experiment, so extreme caution usually prevails when new ideas are assessed. Opportunities tend to be defined narrowly.

Moreover, the tools commonly used to support the process exacerbate the problem. Based on retrospective analytics—Net Present Value (NPV) models, for instance, are built on market projections that are calculated using past trends—they tend to skew innovation decisions toward optimizing existing product lines rather than pursuing new ones.

As a result, promising ideas are often smothered. And while many of the innovation initiatives that do gain approval are low risk, they offer only low returns—incremental improvements that usually do little more than maintain market share”.

They go on to suggest with product lifecycles across industries shortening, successful innovation often hinges on speed. And that, in turn, requires a risk management process that can shorten learning cycles, recognize failures early and make timely course corrections—a process that facilitates a company wide dialogue around which risks are acceptable and how much risk is appropriate, based on potential returns”

They are quiet rightly suggesting “with risks well-managed, companies can then use rapid experimentation and the techniques of agile development—an iterative process closely linked to customers and markets—to boost their chances of coming up with a truly profitable innovation portfolio.”

Yet tell me how many our organizations have a clear, robust risk management framework for innovation? Is innovation even fully aligned into the corporate strategy?

Our obsession begins and ends with the search for numbers.

Clayton Christensen has argued that organisations’ agenda begins and ends with the “search for numbers”. Organizations have been focused for far too long around the importance of financial capital. It determines and drives organizations’ destinies. We are caught in a constant focus upon our achieving a return on our (financial) capital as our measuring criteria and innovation gets totally caught up in this mistaken measurement, it stifles ‘great’ innovation to emerge and provide truly differentiating advantage. Why do organisations stay locked into far too much “me too” innovation?

At a time when capital is not scarce, it is abundant and cheap, we still see a lack of bolder investment in game-changing innovation. Organizations are hoarding capital or passing it back to the shareholder. Both admirable but they don’t build the future, they only keep you in the present. When financial capital is the final arbitrator it totally fails to tell us in numbers alone where and what creates the value, it simply reports the end result, it is always backward looking, never conveying the future unless capital investment is being made.

Today our balance sheets hides or can’t report the loss of opportunity value, if only innovation had been treated differently. We are caught in a time that most of our business organizations are in a period of risk-aversion where the innovation ‘bets’ are more incremental, more short-term pushing for greater utilization of existing assets. The longer-term health of organizations seems to be kicked down the road for later generations to tackle, if they are still in existence!

We need to that prompt more on risk and innovation, reflecting why and how it should be treated in different ways and this might encourage a greater top management engagement. We need to encourage a shift and seek out the dimensions, criteria and thinking that can be applied to encourage more risk-taking, more radical and breakthrough innovation.

Can we walk a different innovation risk path?

The understanding of risk will always have associated with some fear, discomfort and resistance and for many can be an uncomfortable place to go. The whole ‘act’ of letting go is never easy. It is the ability to manage risk that reduces the fear. It is through experimentation we gain our best learning, we actually are forward learning as we are accelerating our knowledge.

Surely the more we attempt something different, proving or disproving it, does make for exciting work? We move towards a leading edge perspective, we evolve more towards a pioneer, an experimenter and this can be contained and managed within a radically different risk management framework. We all can be encouraged to raise our risk appetite with establishing clear guidelines and parameters, so we all become more motivated and engaged, excited about a different future, curious to explore, wanting and  encouraging an environment to experiment but this ‘signal’ and risk appetite guidelines must come from the top. If it is left unsaid, radical innovation will never naturally happen, what a pity.

We need to recognize that allowing greater risk and investigation encourages us to see change differently, to offset the growing disruptive aspects swirling around us. Recognizing we are mostly operating  in markets with slower growth, higher volatility and potential for disruption needs pushing risk in innovation. Risk needs to be proactive not reactive.

Equally the sentiment reinforced by this demand for clear, demonstrative ROI measurements from innovation tends to send the clear message that we cannot disrupt our core, yet others are working purposefully at doing this, knowing your weakness is not taking risk and wanting to disturb the present equilibrium..Risk comes from not knowing and experimenting outside the core. When you are not restless, someone else certainly will be, seeing opportunity.

Achieving a growing certainty of return needs to be paramount in our minds as innovators.

We need to manage the ‘certainty of return’ by making the knowledge that comes from many incremental steps, of experiment to validate an idea, that eventually builds into a new innovation, that needs managing differently. That can come from steady ‘readiness-based decisions’ that prototypes or pilots that are put into the hands of the consumer or customer to explore around, will advance our knowledge, each time clarify the potential value and ‘seen’ worth of this concept over the existing ones in the market place or require us to re-evaluate our assumptions.

We need to develop those risk-mitigation steps to constantly increase confidence. We need to find a real space for uncertainty, for a risk-tolerance so as to allow the shaping ideas, exploring and learning in taking controlled risks, encouraging experimentation, providing tolerance (of failure or expecting stronger debate), exploring the unknowns, all should be an integral part of innovation in any new risk management framework.

Stage-gates is also not the innovation panacea to manage innovation.

I would argue we should stop regarding the Stage-Gate as the panacea for managing all of the innovation needs. Stage-Gate handles the incremental product cycle fairly well, but when you are on a more open innovation platform collaboration or more radical design, it struggles to be flexible, agile and fit the different challenges presented by the collaborating parties. We need something significantly different to handle the other types of innovation, those more radical, distinctive and breakthrough.

True innovation goes through much of an iterative process

We need to adopt a more flexible and adaptive process, one where learning, looping back, iterating constantly, that promotes and encourages an experimenting environment for innovation that is more new to the world. As we iterate, we learn, as we learn we can improve our understanding of its growing value.

This needs to be in a more dynamic ‘management of the portfolio’ concept, from concept to commercialization process.

A place where risk-mitigation needs to be built-in all the way, to search for and then build new knowledge as it ‘reveals’ itself. In innovation, it is never apparent, you have to ‘tease ‘ it out on its value and contribution, in providing concepts, pilots and prototypes. Everything simply cannot be available when you often just don’t know, you take small steps often to feel your way and build that knowledge up. This comes from engaging with your customers, in the market place not your own premises.

How about approving some pilot projects and providing resources to have unfettered six-month periods with no rules and no reviews? At the end of this agreed period ‘something’ that shows promising value and clear advancement on the past position that has been seen and tested with customers gives confidence, reduces the risk fear. Then you embed the learning and further scale it, if it shows the promise and shows a ‘interesting business case’ for more investment.

It encourages increasing the risk of spending funds, dedicating resources that lock up assets but by setting these in clear time frames and with a definitive result that the outcomes not just advances knowledge but it can show that the concept does takes you closer to its future value.

Progressive in building risk management for innovation

Over time progressively learning increases our risk-tolerances, we become progressively more creative in this risk-taking orientation to seek out and push for more innovation.

Equally allow those who are willing to take risk, as their more natural position that head room to explore, to push boundaries that often reveals different innovation. By sitting down and outlining the risk acceptable within evolving guidelines, those that are not ‘well-set in stone’ but will evolve and loosen as we learn. We should expect them to be broken on a few occasions but work with this if it was an informed risk, learn on why, talk with those that overstepped the limits, to see what was right and what everyone can learn from this.

Equally, leaders need to stay totally engaged and constantly talking about what innovators are doing where-ever you can, through face-to-face discussions, dedicated meetings where risk assessments being clearly known to be up there on the agenda, to be evaluated and determined for the next steps. Also being prepared to step back to bring the risks that seem uncomfortable back into alignment with the risk tolerance levels, allowing the engaging in the ‘healthy debate on why this innovation might be different and needs different criteria. Innovation needs to be a dialogue and risk management can become its friend not its inhibitor.

Through this more enlightened approach to risk and innovation we do allow-in that greater desire for the capacity to be innovating and how we all want things we are working on to improve, to give us a greater meaning within our lives. More purpose, more satisfaction, greater identification. More value, greater growth and impact.

Fostering risk tolerance designed specifically for innovation does need treating differently, to grow and thrive. You can push innovation beyond the ordinary, back into the extraordinary and that enables innovation to deliver far more on its true purpose. There is a strong case to be explicit on the risk profile for innovation to be different.

Part three of this series looks more at the mechanics for improving risk maturity for innovation.

The post Treating Innovation Risk Differently, Dealing with Uncertainty first appeared on Building Your Innovation & Ecosystem Intelligence.

I feel we spend less time on managing risk within our innovation initiatives.

We so often simply measure risk on established risk/return lines of known existing business criteria, treating it as part of our existing ongoing business, and that is plainly wrong.

Risk assessment within our innovation activities needs a different, far more distinct framing that reflects the nature of the unknowns we are working with, in my opinion.

Our organizations need to relate to the differences far more, to allow this ‘innovation risk assessment’ to play an increasing role in ‘advancing’ innovation and its understanding at the boardroom level to relate to and take a different risk-related profile position that many take today.

So in a three-part series, I want to set risk in a better strategic and operational framework but to begin with, until we address the alignment issue between a firm’s strategy and the linkage of the innovation activities, innovation fails to make the essential boardroom connections and risks always surface, as they have no referencing framework to revert too.

To start this series, I decided to quote Gary Pisano, someone I have admired in his work and thinking for many years. The part I have extracted here sets the frame for having an innovation strategy aligned to the strategic objectives, it is then through this we can focus more specifically on where risk needs to be, the focus of this series of posts. I just didn’t feel the need to add more here, I absolutely identify with his thoughts, so let him deliver the right words.

You Need an Innovation Strategy for it to really be seen as a critical resource of an organization.

Gary Pisano had an excellent article, “You Need an Innovation Strategy” on HBR. He comments:

“I have found that firms rarely articulate strategies to align their innovation efforts with their business strategies”.

The post The Pressing Need to Link Risk into an Innovation Strategy- part one first appeared on Building Your Innovation & Ecosystem Intelligence.

In a recent report called “Radical Innovation and Growth: Global Board Survey 2016 ” (link opens the pdf) we have results from a survey jointly conducted by Deloitte Denmark and Board Network – The Danish Professional Directors Association, that opens up much that can concern us about the current boardroom and its great difficulty with managing more radical innovation.

It seems within our boardrooms they are ill-equipped to managing in today’s world, grappling with the past, holding on, perhaps too tightly, to the present and certainly being unsure of the future. It is struggling to adjust to all that is entering their world.

In this report, they surveyed 614 global board professionals from a total of 50 countries during the period covered from November 2015 through to February 2016 and then published in February 2016.

I quote extensively from the Executive Summary and Introduction and urge you, the reader, to delve into the report which I found an easy read to understand and grasp the magnitude of this present boardroom discomfort.

It comes as no surprise to me, or many out there working to disrupt the incumbent but it makes for difficult reading that this is not addressed far more head on. This is a more than timely report in my view.

Corporations are under increasing attack and are really struggling to become more radical in how they can defend, secure and achieve growth. A lack of understanding innovation in all its forms is coming back to haunt them. They can’t seemingly handle radical innovation and there is even more of an imperative to learn.

The Survey wanted to understand the current mood within the boardroom

The survey set about understanding the current boardroom thinking about how to address  the exponential technology is affecting growth (and indirectly competitiveness) in international companies and organizations, they have gathered insight on how global corporate boards address and work with radical innovation and to what extent they see growth stemming from their efforts. Radical innovation is defined here as:

The report dug into the boards’ appetite for growth; how high is the bar? It looked at their risk profile and tolerance of failure. It examined the role of innovation in company strategy and its strategic importance on the board’s agenda. Is radical innovation a bulleted point at board meetings?

It questioned whether there is a clear alignment of innovation and growth goals. Do boards spend enough in terms of man hours, consultants or other expenditures on new initiatives? It asked if companies actually own a Division-X and if yes, to what extent they are successful.

It wanted to address the skill-set at board level to handle digital disruption and the urgency to act proactively. It set about the identifying of board barriers to handle radical innovation and finished with a set of recommendations based on their quantitative findings topped with first-hand experience and opinions from a number of selected global board chairs.

The respondents describe that competition and technology are among the four most important external challenges their companies are facing now. The issue was on how are the boards taking on the challenging responsibility of overseeing their companies’ radical innovation efforts?

It concludes: “At board level, what we are seeing is the beginning of a shift among board professionals’ responsibility. As if oversight of company strategy, risk management, succession planning, budgeting and forecasting, sales and marketing, operations, auditing, IT, remuneration and tax was not already a fight.

Now corporate governance includes overseeing new business development with its itchy elements of experimentation, demand for scalability, risk of failure and navigation in a fully digitized and unpredictable new business world. On top of this new business today is developed at a pace that leaves little time for thorough analysis and precise risk mitigation”

 The Common trends they found were:

• The two dominant barriers for boards working with radical innovation are lack of insight (47%) and lack of organizational design to handle radical innovation (46%).

• 40% of respondents have no director with sufficient knowledge about digital disruption and 43% feel their management invests too little to achieve their long-term growth goals.

• The boards’ failure tolerance is low as seen 18% try to avoid failure in all their dealings.

• The financial risk scenario is also conservative, 34% of respondents characterize their board’s risk appetite as one where they try to avoid big financial risk.

• There is a clear tendency towards expecting radical change coming later (in five years) rather than sooner (this quarter).

• A staggering 75% of companies with the highest growth expectations for the coming 24 months (above 10%) also own an actual Division-X (or equivalent). We see this result as a clear indication of Division-X actually driving growth. (Note: only 22% have a so called Division- X, with 58% of these starting this in the last two years)

• Radical innovation is still a new idiom at board level with 65% not having it as a formalized item for discussion or action at the board meetings. (Note: Understandable but not forgivable in this disrupting world)

Welcome to the era of disruption, it is a tsunami of issues being grappled with.

The report suggests that while global boards are taking action now, there is room for improvement. Especially when it comes to the need for greater insight into the area of innovative initiatives, grappling with organizational design, dealing with risk and failure, and sheer experience in working in the huge discomfort zone driven by accelerating technology.

“If work has become steadily more demanding for the global board member recently, at least there was a predictability associated with that work but it is all about to change.

Now, in light of massive technological disruption, the new workload for a board professional revolves around a risky, failure prone and unknown innovation territory as they can start seeing themselves as largely inexperienced new business development leaders”

I do recommend reading this report.

I certainly do recommend this report, it confirms much, it conveys much, it certainly helps to frame many of the issues the boards are less than certain about; of the uncertainties they are facing, of where their business will come from in the future.

Indeed how they are presently ill-equipped to fight on these new battlefields of future business creation in this disrupting world, as these are “largely inexperienced new business development leaders,” in a radically changing world of radical innovation.  With lots of uncharted waters entering the boardroom they need to become far more radical within themselves or will be drowned from not navigating this at all well, the worry is who and what else sinks with them?

It does seem the board members need a lot of help and it needs to come from well beyond the usual advisors but are they prepared to take different advice? It does not auger well as there does seem a real stubbornness to make real change and perhaps a belief that these disruptive forces are not knocking on their boardroom door. How wrong they so are!

The post Uncharted Waters Disrupting the Corporate Boardrooms first appeared on Building Your Innovation & Ecosystem Intelligence.

Partly a niggling health issue finally got resolved with a ‘delightful’ week in the hospital, a couple of operations later, with a reasonably speedy recovery now thankfully underway.

The plan of course was for me to really use this confinement period as one of those opportunities to catch up on an awful lot of reading around innovation, planning out some areas to focus upon in the coming months and year ahead.

My logic was at the time, well this is similar to a long train journey or flight, you use this time and climb into a number of areas that have been quietly ‘festering’ away in the back of my mind, sitting on my desk or tucked away in my computer.
Of course, it never works out as planned, those ‘pesky’ interruptions checking your vital signs, wanting to know “are you in pain” or in this case for me, that firstly, a rapid realization of the effect of two operations leaves you fairly sore, popping in pain killers and making sure you can quickly walk off the effects of the surgery and the need for two full anaesthetics.

Then all the wriggling and reworking of the hospital bed at all its angles to get myself even comfortable for the job on hand to read and catch up.

Let’s not even talk about all the bruising giving me a rainbow effect!

That time was not as well spent equally on trying to keep to my optimistic plan, as I was only armed only with a tablet taken into the hospital realizing that this never- ever makes up for my ever-faithful laptop, driving me mad in its slowness and lack of robustness in the normal programs I use. Blood pressure pills came in handy here also.

Still I came away with a 50% achievement mark which was not so bad on the overall innovation intent I had set myself but one area was very frustrating to move forward upon- the subject of risk and how it is treated in innovation management.

Risk and innovation has frustrated me in this recent period.

One area that has been really bugging me is risk and innovation management. I just can’t seem to have achieved a decent ‘lock down’ on this.

I’ve collected different articles, have browsed through different books and have a few of my own views but in all honesty this was only a 30% achievement on my framing this in the way I wanted to take forward. It is going to be tougher than I initially imagined.

Most of the specific innovation books I have laid my hands upon have a notional one page or one paragraph on risk – taking, leaving it as simply ‘ticked off’ but certainly (really) badly covered.

The only notable exception I have found so far to this is Bob Cooper, who does explore different aspects of risk within his books. The one on my desk “Winning at New Products” has some decent references and approaches to begin to think risk within our innovation management

Why are we not discussing risk management and innovation in deeper ways? We should be. 

In my searches I was expecting more, does anyone have something that they can point me too, to kick-start my thinking into a deeper dive I need to do?

I would have equally expected the auditing firms that have internal innovation practices to have given this a more ‘decent’ airing of their expertise. All the ‘biggies’ have risk advisory services yet I struggle to find anything specific about managing risk in innovation.

I did get one comment back when I started to ask in my own network which perhaps pointed to a dearth of risk and innovation and that was: “the organization will not treat innovation risk as being greater or different as the unknowns are not seen as higher risk but as the norm, and the teams within that organization will have the capability and flexibility to adapt to change and continually incorporate learnings”.

I’m not sure the teams involved in innovation do have this capability to adapt and change to continue to incorporate learning if managing risk within innovation is not clarified. It will be highly dependent on each organizes accepted norms for risk but I valued the point. It does seem risk and innovation are bundled up into general risk management or are they?

One glimmer of research yielded some decent insights

Accenture provided the best view I have gleaned to date in a paper “The art of managing innovation risk“. They nicely sum up the risk dilemma as:

“Few decision makers want to take responsibility for a failed experiment, so extreme caution usually prevails when new ideas are assessed. Opportunities tend to be defined narrowly.
Moreover, the tools commonly used to support the process exacerbate the problem. Based on retrospective analytics—Net Present Value (NPV) models, for instance, are built on market projections that are calculated using past trends—they tend to skew innovation decisions toward optimizing existing product lines rather than pursuing new ones.
As a result, promising ideas are often smothered. And while many of the innovation initiatives that do gain approval are low risk, they offer only low returns—incremental improvements that usually do little more than maintain market share”.

The view within this report helps me, in that it points to changes in some companies:

“Leading players recognize that far from stymieing innovation, sophisticated, state-of-the-art risk management tools, techniques and models, including small-scale experimentation and portfolio management, can actually help encourage it. They know that by fusing such a risk management approach with innovation, they can create a powerful, value-driving partnership.

In this Accenture report they go on and argue “risk management groups could work as standard setters, providing a common language the business could use to translate strategic challenges into specific, measurable risks, and providing such risk governance expertise as oversight committees and assessment procedures“.

So I turned to someone I greatly value around Governance, Professor Jean-Philippe Deschamps book “Innovation Governance“but I was sadly very disappointed that such a small space was set aside for risk within innovation governance. I find this hard to understand. I will need to approach him on this to delve into his thinking a little more on this.

Then Accenture within this one ‘decent’ report went on in suggesting: “by continually assessing value against multiple variables and scenarios, predictive analytics can help guide these complex decisions. Risk scenario (or simulation) analysis, for example, is a structured, forward-looking process designed, unlike traditional SWOT analysis to discover how multiple factors combine to create both vulnerability and opportunity”

Yeah, I liked these but it left them as dangling out there, needing more work from my perspective and need.

Then Accenture went further and into this “with product lifecycles across industries shortening, successful innovation often hinges on speed. And that, in turn, requires a risk management process that can shorten learning cycles, recognize failures early and make timely course corrections—a process that facilitates a company-wide dialogue around which risks are acceptable and how much risk is appropriate, based on potential returns”

They are quite rightly suggesting “with risks well-managed, companies can then use rapid experimentation and the techniques of agile development—an iterative process closely linked to customers and markets—to boost their chances of coming up with a truly profitable innovation portfolio”

The conclusion within this Accenture report I liked but it left me really wanting more.

The conclusion of this Accenture Outlook report was:

“Most companies today have come to recognize that sophisticated risk management is a key enabler of long-term growth and profitability. What’s more, some companies have put in place advanced capabilities to manage their innovation risks successfully. Few, however, have developed the agile, iterative approach that can drive breakthrough innovation rather than drowning it—or have created the risk-tolerant, organization-wide governance structures that allow such capabilities to flourish”

Stepping over the risk marker drawn in the sand
Accenture has drawn a mark in the sand with their article but that is already two years old and we really should step over this and advance this set of ‘generalizations’ where innovation risk is not so much bundled up, as broken out.

Opening up on managing risk in innovation needs to happen
We need to open up our collective thinking about risk and innovation management. We should aim for a really healthy construct that does help all involved or associated with innovation and managing risk, a better chance of pushing beyond the incremental innovation that avoids most risk and disappoints those seeking real growth.

We need to encourage a shift and seek out the dimensions, criteria and thinking that can be applied to encourage more risk-taking, and radical and breakthrough innovation. Something the vast majority of our organizations are not encouraging when the short-term mindset dominates.

There does seem this poor recognition of how to manage risk within our innovation management, often it seems in just piecemeal ways to slip under the risk radar, or avoid addressing it specifically under the corporate umbrella that would most likely kill off most ‘speculative’ innovation, simply as the established corporate risk criteria can’t be determined for innovation unknown until ‘decent’ investment is made.

So I’m not advancing at the rapid pace that I wanted to on risk and innovation.

Do we treat this specifically, differently or allow it to evolve on an ad hoc basis or define how it is differentiated from ‘normal’ risk assessments or criteria to encourage a greater innovation top management focus, something we certainly need? .

I think if innovation is not seen or treated any differently, perhaps then it will be treated badly, getting often the low-level of top management focus. While there is no established innovation risk management practice then this must be a prime reason innovation is being held back in what it can deliver.

We need to that prompt more on risk and innovation, reflecting why and how it should be treated in different ways and this might encourage a greater top management engagement.

I need to keep working on this, now it is time for me to pop another painkiller to keep going. Managing my pain takes precedence over managing innovation risk at the moment but I must come back to this poorly represented side of risk and managing innovation.

The post Risk and Innovation frustrate me first appeared on Building Your Innovation & Ecosystem Intelligence.

In a new book written by Rita Gunther McGrath, a professor at Columbia Business School in New York and one of the world’s leading experts on strategy, she has been exploring the changes rapidly taking place called  “ The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business”

 “Strategy (in the past) was all about finding a favourable position in a well-defined industry and then exploiting a long-term competitive advantage. Innovation was about creating new businesses and was seen as something separate from the business’s core set of activities.” “Sustainable competitive is not just ineffective, it’s actually counterproductive” says Professor McGrath.

She rightly states:“Think about it: the presumption of stability creates all the wrong reflexes. It allows for inertia and power to build up along the lines of an existing business model. It allows people to fall into routines and habits of mind. It creates the conditions for turf wars and organizational rigidity. It inhibits innovation.

It tends to foster the denial reaction rather than proactive design of a strategic next step… A preference for equilibrium and stability means that many shifts in the marketplace are met by business leaders denying that these shifts mean anything negative for them.”

Innovation needs to finally emerge in a new form.

Innovation cannot be separated from implementing an effective strategy, actually it is becoming far more central. Yet our leaders are constantly failing to recognize their essential role they must play to allow innovation to realize its place within the goals and needs of the strategy.

They will be in denial by failing to build the innovators organization to manage this  new transient advantage. One that is highly flexible, agile, built around a constellation of emerging business principles that builds upon the ethos of imagination, exploration, experimentation, discovery and collaboration (Steve Denning).

A new structure that has as part of it one that promotes independence, diverse thinking and seeking out individual contributions. To achieve this innovation needs to be fully embraced as a clear competency that does need to be professionally built and certainly well-managed; it needs leadership’s total engagement for establishing new principles, practices, attitudes, values and beliefs that become central to the new way forward to deal with this new transient advantage suggested by Professor McGrath.

Today the rhetoric outweighs the reality for innovation and we need change!

Survey after survey of our leadership within organizations talks up innovation

• * Over 70% of CEO’s surveyed constantly named innovation as within their top three strategic priorities
• * 93% of surveyed executives said the long-term success of their organization’s strategy depends on their ability to innovate
• * For almost 90 percent of CEO’s, generating organic growth through innovation has become essential for success in their industry.
• * Also over 70% of the top executives identified themselves as the primary driver of innovation

Yet innovation is failing, reality is constantly hitting home in poor results.

• * Despite increased business investment in innovation, only 18% of executives believe their company’s innovation efforts deliver a competitive advantage.  Source: a new Accenture study (May 2013)
• * The “absence of a well-articulated innovation strategy” was identified as the most important constraint hampering organizations from reaching their innovation targets, in a study published by Capgemini Consulting in April 2012
• * Almost 60% of firms surveyed admitted that they have no explicit innovation strategy ( a joint Cap Gemini and IESE study)
• * Only one-third of the executives report innovation is fully integrated in corporate-level strategies (McKinsey Quarterly, 2012)

Then you go deeper into organizations current position on innovation

The formal management of innovation is largely overlooked and to quote these statistics from an Innovation Leadership Study in March 2012:

• *Only 30% of respondents agree they have an effective organization structure for innovation
• *45% do not have a well-defined governance structure for innovation
• *40% lack clear roles and responsibilities for innovation
• *39% state they do not have an effective decision-making process for innovation
• *49% are not having a well-defined process to prioritize and allocate time and funding to innovation projects
• * 54% of those surveyed indicate they do not have a formal KPI system for promoting innovation

Innovation comes to a screeching halt because it is not totally integrated and fully supported from the top and embedded into the core of organizations. Innovation is failing to deliver on its potential. Can you imagine all that invested time in innovation, on tasks, products, concepts, ideas that fail? There is real waste  if innovation is not fully aligned to the strategy.

If these constantly don’t align to corporate strategies, someone somewhere should be concerned, I mean really concerned. Perhaps as “mad as hell” and we are not going to take it any more. Something has to change or many of these organizations will not exist in the future .

The great disconnect at the top of organizations for innovation is in plain sight for all to see.

So we must see there is a huge gap that does exists between what executives want, and what the business believes and is knowing what is actually going on.  Innovation for its needs actually lie in the senior executive own hands:

• Executives need to demonstrate that they want and need innovation
• They must become more engaged and outline (in some detail) their expectations
• They must create a framework or structure to ensure it exists

Innovation success starts and stops with senior executives. 

They want innovation success but they consistently fail to understand their part within the innovation need-to-succeed. Only senior executives can:

• Communicate and develop the innovation vision and work towards actively reducing the barriers it faces within their corporation
• They need to bridge the existing culture with one that promotes innovation, where both short-term need and long-term sustainability are equally encourages and worked upon
• Influence and encourage the breadth of skills and capabilities needed in innovation to be given the appropriate focus for its organization to successfully innovate
• Establish the environment and then create and support the incentives where innovation can flourish effectively.
• Work constantly at ensuring the conditions for success is well-communicated and the clear goals and expectations are articulated.
• The top executives must understand the investment required for innovation and provide the adequate resources and funding along with clear directions
• Actively seek alignment of the innovation activities into the strategic needs they see as critical to work towards
• They need to set the innovation strategic agenda and provide a robust and clear integrated innovation framework like the Executive Innovation Work Mat, for example.

The sad, sad truth is that many of our leaders still cannot get comfortable with innovation.

Many of our present leadership of organizations are actually uncomfortable with innovation; they want to keep it on the periphery of their thinking.  It disturbs much of what they have worked all their careers upon, honing a highly efficient and effective organisation that minimises the risks, reduces the surprises and works away in a highly predictable and steady way.

They often lack any real depth in innovation experience and training. They are fixated on the short-term, often to the detriment of the longer-term opportunities due to tenure and their incentive metrics.

Today the senior executive loves to get fully involved in the urgent needs of the day, moving constantly from one operational oversight meeting into another, spending decreasing time on the important.

The pressures and demands placed on them to respond, to react, to comment on day-to-day events, are growing in priority to be seen as ‘being on top of these’  but are they losing the longer-term perspectives and detachments needed for designing organizations differently?

To meet rapidly changing challenges and actively working upon new organization designs to give a new fitness and intent? Often these seem rushed and reactive to threats or poor results.

The larger the organization, also the greater the disconnect is happening between themselves and their employees and this is creating increasing growing barriers to understand the pulse of the business or stay tuned to market shifts.

Organizations are losing any competitive advantage as they are failing to see a huge change taking place before their eyes as they remain rigid and fixed, locked in the past. Internally alignment is becoming harder. Advantage is only short-lived, yet our organizations are totally encumbered by out of date designs and structures.

Organizations are being challenged far more today and their relevancy needs radical redesigns and stepping back and designing these is becoming critical. The core of our organizations needs to shift towards more agile, adaptive and innovative designs.

The need for a real alignment of strategy and innovation

Innovation stands in service to strategic goals such as growing market share, differentiation and disrupting adjacent markets, serving the consistent changing and demanding customer needs by spotting these and then exploiting them rapidly and effectively.

Creating clear goals and linking/aligning innovation to those more agile strategies is a vital role for CEO’s and senior executives.  Senior executives must establish the manner in which innovation fits within the strategic context established by goals, vision and strategies.They cannot abdicate this role. Change is hard, so is innovation.

However, even when executives understand the linkage, they may fail to understand how to ensure linkages between corporate strategy and innovation actually does lie with them to be communicated throughout the organization.

When executives simply request innovation and delegate the decisions and definitions to business line leaders or executives outside the boardroom they are delegating the growth and future of the organization to others. They are killing the true potential of innovation as it remains unaligned. This cannot continue, we need to bring innovation into the boardroom as core.

If we are in a world of transient advantage as Rita Gunther McGrath suggests, she also clearly states: “Innovation needs to be a continuous, core, well-managed process rather than the episodic and tentative process it is in many companies”.

Identification comes from the top and from our customers

This new innovation core can only be led and fully integrated from the top, aligned fully into the strategies, organizational design and the goals. In rapidly changing market conditions where advantage is transient then we certainly need very different designs within our organizations to respond.

It is absolutely time that innovation comes fully into the board room and driven from the top. Innovation needs to be recognized fully as the key to more prosperity, more growth and added value – achieving that is the mandate of the board and this requires an explicit integrated innovation framework, no less that reflects the changing reality of the era we are in.

Then others can simply get on with the job of responding by delivering the innovation outcomes that are constantly aligned to the needs within the changing landscape and demands placed on all, to read, react and respond differently and this needs total integration from top to bottom through an overarching set of integrated frameworks.

A different alignment is required.

Alignment is just not the internal need any more; it is having clear external alignments as well; in knowing the customers needs and reacting to these faster and with clear competitive intent, aligning with others on different platforms and collaborations.

Having an innovation geared organization that has clear goals, principles, values and attitudes that is working towards a consistent range of organizational possibilities. One that is ready to capitalize on breaking opportunities, aligned to exploit these. Then having in place the capabilities to build rapidly out on these to exploit these through new learning, new insights and growing connections so extending the possibilities even further.

A constant evolving strategy perhaps, one that will give the organization a new more demanding competitive advantage, that is built on anticipating and managing constant change, never standing still, always evolving, being in perpetual transition.

A different ‘sustaining’ capacity built around innovation as the continuous core, constantly evolving, adapting, learning and adjusting. In perpetual innovation motion.

The post Figuring out a different strategic alignment with innovation being central. first appeared on Building Your Innovation & Ecosystem Intelligence.

This questioning increases particularly when there grows even more uncertainties in marketplaces, when you are forced into making tougher investment decisions, in allocating resources, in adjusting a strategy to meet changing circumstances.

Then you get the “well, what’s the payback period then?”

Often we struggle to offer a half-decent reply as most innovation has stayed mired in incremental approaches and so becomes fairly complicated in identify the new part from the old that is already the invested part, or it remains uncertain, as it is often exploring the unknowns.

Perhaps we should reverse this question or be ready to ‘gazump’ it and beat them to the question before they ask. Two specific ways to think about this come to mind.

The first was suggested in a post back in 2005 by Ruth Ann Hattori called “the cost of not innovating” and I like this one. The other came from a post by my innovating friend and collaborator, Jeffrey Phillips “what are the opportunity costs on not innovating?”

Jeffrey is still not residing on a tropical beach as he still has not got the complete answer to that one. Both are tough questions but well worth reflecting over.
Merging both of their thoughts here and adding a dash of my own spice let’s explore this a little more

To quote from Ruth Ann’s article “What is the cost of not innovating?” What can happen when you don’t innovate but your competition does? If management’s evaluation of the cost of innovation is only focused on ROI and doesn’t account for the cost of not innovating, they are only seeing half of the picture and may be missing the half that’s strategically critical for the future.

Well how would you answer the following questions?

Again Ruth Ann nicely raises a few uncomfortable ones with some small adjustments on my part.

1. In the past couple of years, have any of your competitors brought to market an innovative product/service that you had the capability to create but failed to bring to market? Why?
2. Has someone recently entered your market/industry with a new or novel new business model that is placing your business at a higher risk than in the past?
3. Have any of your competitors found a way to streamline or reinvent processes that you still struggle with, to become increasingly open and find new collaborative ways to speed innovation to the market?
4. Have your customers begun to drift away in search of a completely new solution to an old irritation as they continue to experience frustrations with existing products?

The cost of not Innovating is the estimated dollar value your competitors have gained and that you have failed to capture through your own innovation efforts and this strikes more at the core of the need for ensuring innovation is well-managed and supported.

The cost of not innovating includes everything you miss when your innovation efforts aren’t focused on your entire business process.

Can we compare the value of the missed opportunities to the opportunities we chose to pursue?

Jeffrey thinks the answer is a qualified “yes”.  He suggests “that is, we innovators should attempt to place a value on every innovation or every good idea, and suggest that the avoidance of innovation means that we miss out on new customers, new markets and most importantly, new revenues streams and new profits.

Those missed opportunities come at a cost – usually in disruption or product or service obsolescence.  This analysis requires a number of assumptions – that we can create a new product or service, that it has value or benefits to customers, and that we can assert some knowledge about the downstream revenues or profits that will be missed if we don’t innovate”.
Jeffrey puts it really well, do managers ever ask “what is the size of the opportunity we miss if we avoid innovating?”

You should consider not just the short-term costs but also the longer term implications if you choose not to innovate by investigating and exploring all the options, otherwise someone else will slip into this ‘void’.

What needs to be recognized by all is that measuring ‘returns’ is really hard

Often the person asking the “what is the ROI on innovation” has never been involved in creating, designing or managing innovation. They can often be the ‘bean counter’, the hard-nosed CFO out to drive up the short-term performance, imposing short-term deadlines on getting the innovation launched within a given calendar year to meet much of his performance measures.

They also often do not really appreciate that there are real disparities on time, investments and resources for managing an incremental project against one that leads to discovery or disruptive innovation and why these are dramatically different.

Of course we need to measure, including ROI, by attempting to qualify and quantify investments and their returns. ROI on innovation is just that much more complex. It is actually where you start in any discussion on returns. We should always start early; keep the dialogue going as thinking becomes validated by new data, by new understanding.

The most valuable return comes from creating ‘something’ that separates you from competition and has the potential for a sustainable advantage. We should actually start here.  Achieving this outcome raises the bargaining power; it raises the perceived value of future attraction from investors.

Innovation that is different from other offerings in the marketplace gives you a clear space from the route that most travel, that of commoditizing the marketplace, often through everyone just pursuing incremental innovations.

Sadly, many within organizations are only given the one choice within their innovation hands are just the incremental cards to play with. These cards are the only ones dealt out by a leadership that often simply do not understand, or allow others to dictate, as they are not fully engaged in innovation and what it can truly offer.

We need to raise the stakes, play innovation poker perhaps and ask the question of them “what is the true cost of not innovating? “What is the true cost of not engaging in innovation?”

Recently I’ve been making the case for closing the leadership gap on innovation.

So before I even get into asking “the cost of not investing in innovation” I’d look at the leadership gap or engagement with innovation as that gives a “fair” indication of where innovation truly fits, beyond just simply jargon and talk.

We have to ask constantly where else do you grow a business, besides extending into new geographical areas – and tell me what is the investment in years and resources before you see returns here? Or you safely continue to incremental-away as your contribution to having a comfortable and safe life.

That just might be one comment to far but might lend its self to being rephrased in a way that is palatable.

No, until we change much of the prevailing thinking, innovation is our only primary source of new wealth- of a country or organizations growth-to get true engagement, that is our real imperative to achieve. Innovation primary aim is to strengthen profit, not weaken it, to build on what we have with something that advances benefit and many often fail to recognize its place here also.

We all wish to be part of something truly exciting and certainly can’t get that much excited if we are asked just to engage with innovation simply as ‘appropriately’ or without any real understanding of what is being asked but not supported.

I wish we could get a greater innovation engagement.
Sadly the leadership tends to push innovation down the organization and in so doing is handing over their future, our future, and no wonder we are seeing shorter tenures at the CEO level.

Investors and stakeholders can only live with this level of perhaps, at best, ‘steady’ performance for a limited time as this approach is increasing allowing for others to seize opportunities, chosen to be ignored often by current management or not fitting with their prevailing attitudes and tenure.

It is time innovation sits ‘squarely’ in the middle of each board room, well represented and searching constantly in linking innovation to the strategy.

I’ve outlined much on this alignment in different articles but start here to get into these previous articles.

So often too little too late

Just look at the attempted turnarounds left far too late because the warning signals were ignored or not wanted to be attempted, as they would have threaten the existing ‘core’ of what had been achieved and invested in, often build for different times.

By taking a more evolutionary approach, they would see emerging the rising stars of  tomorrow where the organization will, over time, become their new core businesses.

Emerging new business help answer the “not investing” question

These emerging innovations or businesses may be step-outs from the core or more related extensions that simply need new capabilities and time to build. They might be completely new areas to invest in. Building successful future businesses requires much seeding but then the questions on “when do we get returns” rises up again-

A leadership team simply focusing on their short-term performance makes choices others never know about that are the real stakeholder, the real investors that take an equity stake.

Why do investors often remain ‘blind’ to innovations that have horizons that are not within the annual review; even external board members often lack an innovation clarity that covers all the three horizons that innovation should be actively worked across.

The missing engagement for innovation at the top
A clear lesson or message lies at the heart of this missing engagement gap at leadership level. Either we invest and engage, to be beyond “average to good” in performance and drive the business with a “no compromise on innovation” mantra to get you above the majority and work hard at managing the risk and return equations this needs.

I believe this is the pathway to a healthy, sustaining future and we need more of this “quest” for real growth.

Or you hanker down and become “frugal” and continue to par back to “good enough” where the majority of organizations wish to be, so they can safely draw down their ‘result package,’ You try to keep the majority of the ‘passive’ shareholders happy to receive a steady return on their investments.

To achieve this often there is a need to sacrifice employee’s for the short-term and throw away their knowledge, trim away the products that don’t fit, divest in assets that don’t yield immediate return, attempt geographical expansion on a “foothold” strategy and with products simply adapted but not built from that markets understanding up.

The final straw is the announcement of buy back schemes instead of investing in the future by committing to innovation. Risk and investment in the future has got lost completely. This is the pathway to eventual destruction but often the leadership choosing this path are not around to see the “bitter fruits” of these decisions.

This is our real innovation dilemma, our innovation blind spot when we look at where innovation fits within organizations, often we really do not know what is actually taking place. I believe innovation roadmaps should become part of the reviewing process to give a better indication of the areas of future promise.

Those that do constantly ask “what is the return for this innovation” really know this is hard but are often I feel defending the (their) status quo, wanting to maintain the existing practices, denying in themselves by ignoring what is going on around them and re-affirming short-term performance as the focus, at whatever cost.

Those that look at innovation differently, across different horizons  are searching for opportunity, for new innovation pathways to a better, sustaining future.

I very much subscribe to the three horizon approach to innovation where you operate in different mindsets and scenarios.

We do need to ask constantly “what is the cost of not innovating” and “what is the lost opportunities we missed” by avoiding or reducing innovation down to meet these short-term pressures.

These that do want to engage in answering these two questions I feel, are really keen to explore and embrace the future through innovation. They recognize uncertainty and risk-taking are necessary needs in today’s more competitive environment and have to be a fair slice of the ‘investment pie’ going forward in managing.

Perhaps these are the perfect questions to ask each time –  it begins to sort out the visionaries from the plodders. Those engaged in innovation, those going through the motions.

Then if you are still having difficulties in receiving replies then ask “well, what actually becomes the final cost when we are forced to respond, often when it is too late?

Let me know how you get on in your personal investment return by asking others about a lack if innovation investment. Be ready for a spirited discussion perhaps and look for a positive outcome.

It improves everybody’s innovation rate of return.

The post What is the missing cost of not innovating? first appeared on Building Your Innovation & Ecosystem Intelligence.